Are you ‘fund manager of the year’ for your SMSF?

Founder and Publisher of the Switzer Report
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What do you do with a story in a business newspaper that wants to tell you who the fund manager of the year for 2018 was? If you’re anything like me, you have to delve into the paper or website to find out the name.

And how do you respond when the name of the fund is Panther Trust? Panther, who? And then what do you think when you find out it’s Stephen Woods. Stephen who?

I must admit this “who is the guy and his fund?” approach was also used by the AFR today. But all they did was put into words what anyone would’ve said. Let’s face it, many of us expected to see a fund we know or a fund manager who’s often in the news but no. For 2018, it was Woodsy and Panther.

However, a point that should not be lost on you is that this result is for one year: 2018.

However, he’s done well over three years as well, so he can’t be dismissed as a one-year wonder. For the year, he did 5.6%. While this looks pretty underwhelming, you have to remember that the S&P/ASX 200 lost 6.9%. Over a three-year stretch, Woods came in third on the AFR’s table, with 14.7% on average, “before fees”, which is a throwaway line by many journos but is something we all should note when considering a fund manager.

The newspaper piece gave insights into Woods’ insight when it comes to investing. He admits to being a pro-momentum investor, who laughs at the idea that the stock market is an efficient market.

And like Investor Mutual’s founder, Anton Tagliaferro, he thinks players in the market overreact, both on the upside and downside. Anton believes the stock price reactions around reporting season (and when a company makes an announcement that changes expectations) are amplified because of computer trading and the age of artificial intelligence.

Like me, he thinks it’s “outlandish” to make a lot out of a fund manager who wins the one-year contest. And that’s the point of this story today. However, another important lesson is not to write-off a good fund manager after one bad year.

In fact, if they have a good track record that should be the most important point when considering where you put your money. It works with great companies, as well as solid fund managers.

And this analysis makes us think more deeply about that disclaimer that ASIC makes financial services businesses put on the bottom of their communications/ads, which tells us that “past performance” is no guide to how this product might perform.

But that’s being totally unfair on reliable, astute fund managers, who do have an innate, educated and experience-rich view on how you can make money investing, speculating and trading in stocks or any assets.

The best super funds in the short-term figure prominently in the 10-year best performers and the reason is that their fund managers have a good investment process. And that’s what you have to  be objective about when you assess you as your fund manager.

If your returns from investing in individual stocks haven’t been good, then you might need to think about creating a fund of funds portfolio. And this table might make you think about simply going into a super fund managed by someone else.

I know when Contango Asset Management (my son Marty is CEO) selected the US fund manager WCM to create the WCMQ exchange traded product for the Aussie stock market, this fund manager’s long-term performance was very high up on the list of boxes that had to be ticked before they attached their brand name, and mine, to the initiative.

Let me share with you what they saw:

3 years 9.1% 8.4%
5 years 13.4% 10%
10 years 14.5% 9.9%

And yes, the table tells you that “Past performance is not indicative of future performance”. But let me move from the world of stock punting to the world of real punting and say if I was forced to go to the races and bet on a horse, I’d prefer my money went on a horse called Winx rather than any other GG in the land!

Her past performance and your willingness to trust your money with her, actually proves to the world that you’re not a dope or a mug punter!

Having a fund of funds nowadays is so easy, with low cost exchange traded funds, which can give you a core holding of Aussie and overseas stocks. And then you could easily use fund managers with great track records for your satellite holdings.

The point I’m trying to ram home is that you are your fund manager when you’re running your own self-managed super fund and you need to invest using a proven strategy that will, over the long term, deliver pretty good and consistent results.That doesn’t mean you’ll always do well because the market can turn against you. But if your strategy and methods are sound, then you could easily find that you’re buying stocks or units in a fund when they’re priced very cheaply.

The greatest mistake you can make is not having a plan that matches a vision. There’s an old Japanese proverb that I love that goes like this: “Vision without action is a dream. Action without a vision is a nightmare.”

For investing, your vision is to make money and it’s inextricably linked to your strategy. Your action is the execution of that strategy.

It leads me to advise that actions that ignore your strategy result in chaos. As your own fund manager, your job is to select the right strategy and then take actions consistently to ensure you don’t lose money in both falling and rising markets.

When Chris Cuffe created his Third Link Growth Fund, I interviewed him and he said he was selecting 10 fund managers (ones he rated) to give him diversification and also as a risk management strategy. Over the years, he would’ve dumped some and added other fund managers but I bet he never acted on one year’s good or bad performance.

And I reckon this legend of Australian funds management would have made his selections based on, yep, you guessed it, past performance!


Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regard to your circumstances.

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